E, S, G and W: Examining Private Sector Disclosure of Workforce Management... (EventID=115227)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinanci... Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Thursday, December 8, 2022, at 9:00 a.m. (ET) Subcommittee on Investor Protection, Entrepreneurship and Capital Markets Chair Sherman and Ranking Member Huizenga will host a hybrid hearing entitled, “E, S, G and W: Examining Private Sector Disclosure of Workforce Management, Investment, and Diversity Data." ___________________________________ Witnesses for this one-panel hearing will be: • Cambria Allen-Ratzlaff, Managing Director and Head of Investor Strategies, JUST Capital . • Colleen Honigsberg, Ph.D. in Accounting and Professor of Law, Stanford Law School • Shivaram Rajgopal, Ph.D. in Accounting and Professor of Accounting and Auditing, Columbia Business School • Fran Seegull, President, U.S. Impact Investing Alliance ___________________________________ Overview Under the Securities Exchange Act of 1934, the Securities and Exchange Commission (SEC) requires public companies to file annual (Form 10-K) and quarterly (Form 10-Q) reports with the Commission to publicly disclose company information that investors would find pertinent in making investment decisions. This reporting requirement mandates the disclosure of an audited income statement and balance sheet, information related to risk exposure, material financial data, and an analysis performed by management on the company’s financial condition. In recent years, investors in publicly traded companies and investment funds have begun to request increased disclosure of standardized and reliable data regarding environmental, social and governance (ESG) related factors. Many investors also want standardized and reliable numerical information about a company’s workforce; for most companies, its workforce is its most important asset. ESG criteria constitute a measurable way to assess a company’s efforts to manage those risks and to hold companies accountable. While publicly traded companies must disclose “material” and other information under federal securities laws, current SEC requirements are fairly limited in terms of express ESG disclosures. The SEC has, however, begun to take steps to establish explicit ESG disclosure requirements. In August of 2020, the Commission, under the leadership of Chair Clayton, adopted amendments to Regulation S-K to require public companies to include in their annual Form 10-K filings “a description of the registrant’s human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business.” In May 2021, SEC Chair Gary Gensler confirmed that agency staff have been developing enhanced climate-related and “human capital management” disclosures. Relatedly, in March of 2021, the Commission voted to release for public comment a proposed rule to require public companies to make a variety of specific disclosures regarding climate-related risks likely to have a material impact on their business. Among these requirements, public companies would be required to disclose specific greenhouse gas (GHG) emission data. The SEC also recently moved to issue proposed rules which would require certain investment advisers and funds which hold themselves out as pursuing ESG investment objectives to make detailed disclosures explaining those ESG investment considerations. Human Capital Management Disclosures According to surveys of public company executives, 71 percent of CEOs identified human capital as one of the most important sources of economic value within their companies. However, despite the 2020 amendments to Regulation S-K, the current SEC disclosure framework does not require public companies to provide investors with uniform metrics regarding their management of and investment in their employees. How a company invests in its workforce can affect the long-term value of the company. For example, if a company consistently has a high rate of workforce turnover, it may struggle to compete long-term. In 2017, a global group of 26 institutional investors representing over $3 trillion in assets, submitted a rulemaking petition to the SEC urging the adoption of standards that would require listed companies to disclose information on human capital management policies, practices, and performance. The petition also includes many of the recommendations the SEC’s Investor Advisory Committee adopted on March 28, 2019. At a hearing before the House Appropriations Committee in April 2018, former SEC Chairman Jay Clayton, who was appointed by former President Trump, emphasized the importance of this information to investors and stated that he “would like to see more disclosure from public companies on how they think about human... Hearing page: https://financialservices.house.gov/events/eventsingle.aspx?EventID=409965